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Obama's Economic Stimulus Plans Are Actually Retarding Recovery
Raymond Richman, 6/15/2012

Obama’s economic stimulus plan, the American Recovery and Reinvestment Act of 2009, actually retarded the recovery rather than stimulated it.  The subsidies to alternative energy sources were counter-productive, increasing the federal budget deficit and increasing the cost of electricity to households and businesses, thus making a negative contribution to recovery. The so-called “Tax benefits” which amounted to nearly $300 billion to date allowed states, schools, municipalities, individuals and businesses to deleverage, to pay off some of their debts but made no contribution to employment. It may have saved the jobs of public employees – teachers, firemen, and police – which saved jobs but contributed nothing to recovery. As Prof. Tower of Stanford University notes in testimony before the Congress. when you look at what state and local governments did with the funds, you find that they did not increase purchases of goods and services or increase infrastructure projects. To date, the ARRA spent $226 billion on entitlements with no evident increase in consumption, and $234 billion on “contracts, grants, and loans”, including insulating house and factories, payments for  “junkers”, and subsidies for hybid cars and electric vehicles, and alternative energy.  

The administration claims that it created millions of jobs but counted the jobs created by other programs. The budget deficits in 2009, 2010, and 2011 ranged from $1.5 to $1.2 trillion which must have created some jobs, not to count the billions in tax credits to alternative energy projects and guarantees of loans to companies in alternative energy businesses. It includes the jobs created by the increase in bank loans made possible by TARP.  The budget deficits and the stimulus expenditures worsened our trade deficits causing millions of jobs to be outsourced to China and others.

The jobs created by all debt financed expenditures were anemic. Although the official rate of unemployment is 8.2%, there are millions employed part-time or who have left the labor force. New jobs cannot even keep up to the number of new entrants to the labor force each month.

Very little of the ARRA expenditures were made by the federal government itself. The amount allocated to infrastructure investment was trivial. It was the basis of one of Pres. Obama’s jokes, while holding a shovel at a ground-breaking ceremony  that next time we ought to really have shovel-ready infrastructure projects ready.  

Pres. Obama’s National Economic Council chairman, Gene Sperling, in a recent interview, stated,  “There is no question that the evidence is showing that the type of things the president did to help state and local governments really mattered, were really helpful in pulling us from the brink of depression to a recovery.” There is no evidence that it mattered at all in creating new jobs. As for preventing a depression, more credit is probably due to TARP which rescued the financial system. Mr. Sperling is a lawyer, not an economist; like his employer.

Mr. Sperling is said to have been responsible for the policy of reducing the payroll tax as a stimulus measure. Instead of social security being financed by employees and employers through pay roll taxes, all taxpayers will have to bear their burden. This appears to have been retaliation for the unwillingness of Republicans to raise taxes on the rich. This spiteful motive made a contribution to workers who have jobs but made no contribution to the unemployed. 

We believe it is fair to say that Pres. Obama’s economic stimulus plan had in fact very little stimulus. There are useful actions that the president could have done that would really have stimulated a recovery. We have described them over and over in this space.

One is ending the enormous trade deficits have cost us millions of jobs. We could quickly balance our trade employing our invention, the single country variable tariff which we call the scaled tariff, which is to be used to force countries with which we have significant, chronic trade deficits – like China – to buy more of our goods and bring trade into balance. We import about 60 percent of the crude oil we consume. Pres. Obama is pursuing an anti-fossil fuel policy which seeks to eliminate fossil fuel consumption and has been inhibiting the drilling for oil and gas and making its shipping difficult by opposing the construction of pipelines.

Another is to end the subsidies to inefficient so-called “alternative energy” sources like wind and solar power. If we wait until fossil fuels become more costly, alternative sources of energy will become economic and require no subsidies. Now they exert a negative effect on the economy. Besides our costly wind and solar plants are having no effect on climate whatsoever.

Another is integration of the corporate and personal income tax. Most American outsourcing is prompted by an attempt to avoid excessive taxation. Our corporate income tax rates are among the highest in the world.

What is beautiful about all of these is that they would promote recovery without requiring any stimulus expenditures whatsoever. 

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

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  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]